How did Dropbox go from idea to 50 million users? Why did Steve Jobs want to buy it? And why did the founders turn him down? Grab this interview and hear how it all went down.
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Hey everyone, I’m Andrew Warner. I’m the founder of Mixergy.com home of the ambitious upstart and the place where you come to listen to successful entrepreneurs tell you the stories behind their businesses so that you can just gobble up all that information, hopefully go out there, build your own company, and do what today’s guest is doing, which is come back here and share your story.
The question for this interview is, “How did Dropbox get to 50 million users?” Drew Houston is the cofounder of Dropbox, which offers free cloud- bases file syncing from almost any mobile device or computer. In this interview you’re going to hear the biography of Dropbox, where the idea came from, how he built it up, why it’s such a frickin’ hit.
Drew, welcome and thanks for doing this interview with me.
Drew: Yeah thanks, it’s good to be here.
Andrew: So, you met Steve Jobs. To me that’s one of the heights of success in the tech space, where Steve Jobs says, “I want to buy you.” Can you tell me why he wanted to buy Dropbox?
Drew: The background on that was we had had conversations with the Mobile Me team, not really in an acquisition context, and we had actually made it pretty clear to those guys that we weren’t interested in selling the company, but it sort of got kicked up the food chain over time. Then I remember being in this restaurant and one of Steve’s direct reports was chatting and he was like, “Well, so you guys don’t want to sell the company, why don’t you talk to Steve?”
And I’m like, “Well, as it’s clear what we’re talking about here, like sure, absolutely, we’ll spend some time with Steve Jobs.” But it was cool; you show up at one infinite loop and you go in the front door and go to the reception desk, and you’re like, “We’re here to see Steve.” And you must imagine like, “Okay, yeah, right,” that they get that all the time, but she’s like, “Okay, have a seat.” Arash and I are kind of thinking to ourselves like, “Well, wait a minute, maybe he hasn’t seen the product, maybe he doesn’t really know what we do.” So we’re trying to furiously get our demo accounts ready and everything. Then, we got led up to the board room, and that’s where we had the conversation.
Andrew: So what was it about Dropbox that he said, “I’ve got some of the most brilliant minds in all of technology here and I can’t reproduce this, I need to come to Drew and Arash and I need to get their company.”?
Drew: So yeah, they have a team working on this stuff, I think their team and he they said we had a great product and we’d already figured out a lot of the stuff that they would have to work on-it’s almost impossible for me to say, but I’m imagining from their shoes just to speed up their development.
Andrew: Okay, and why did you say no?
Drew: We were (?)] on building the company and obviously we still are. One thing that’s important for Dropbox is for it to support all platforms. If you sort of get it too close to (?) platform versus the others. One thing people love about Dropbox is they’re free to use whatever platform they want.
Andrew: I see. All right, so let’s go back in time and talk about how you came up with this idea.
Andrew: Can you tell me how you came up with this idea? Can you tell me a little bit about that?
Drew: Yeah. So, Arash, my cofounder, and I both studied computer science at MIT. And there, because there’s this whole campus network where there’s like ten thousands of computers, and all your stuff is just in front of you. So not only your files but your kind of whole environment kind of follows you around. And then Arash and I graduate and it’s kind of back to the Stone Age. And I’m like carrying around a thumbdrive, and I’m e-mailing myself stuff. And this is a personal pain point for me to deal with this.
And so, the last straw for me personally was, I was just graduated from school, about a year out of school. I was taking the Chinatown bus to New York. And I forgot my thumbdrive. So I’m sitting down on the bus. I’m really excited because I have like four hours to get stuff done and then I just had a feeling in the pit of my stomach where I just knew something was wrong. And I’m like searching through my pockets and I’m like oh god. And so it’s like, now I can’t get any work done. And so I sulked for ten minutes but then like any self respecting engineer then started writing some code and having no idea where this one would end up.
Andrew: I read in Forbes that you had about six startups before this. Is that right?
Drew: Yeah, so I’ve been involved in a bunch of startups usually as an engineer. And I’d started one company before this doing online and safety prep.
Andrew: So where did you get the confidence to say, you know what I’ve got to go and build this up? I’m going to go on my own and get into the storage space, which is still to this day not the sexiest of businesses, and has to this day tremendous competition.
Drew: Yeah, I mean, for me the problem was still unsolved. And I tried all the other stuff that was out there. And one of the frustrations to me was like you needed one service to back up your stuff, another service to kind of upload your files to a website, another service to sync your computers, another service to send big files. Where to me it just personally seemed pretty clear that all these things would have kind have fallen under the same umbrella. And if that product didn’t exist, I was like let me just try to build the simplest thing that could possibly work.
And part of it was I had a bunch of other friends doing startups, and they were, maybe they’d started out in Boston and then moved to California and they were just having some really good experiences. So part of it was just the desire to start a company in general and part of it was just in watching them, sort of my peers, be successful. And part of it was just I needed this thing and nobody had built it. And if someone had I probably wouldn’t be here right now.
Andrew: So you talked to Chris Dixon. You went to him you said for advice about how to build up your business. And he said even after you walked out of the room he said you know he didn’t ask me to invest, but if he would have I wouldn’t have invested.
Andrew: What was it that you saw in the idea that Chris missed back then?
Drew: You know, and Chris wasn’t alone. I mean there were a lot of investors that we talked to who were not excited. And actually if I were an investor at that time I would have looked at the landscape and been like, god this is not, and seen no companies really take off. To me it’s really just about the experience. And nobody had made, you know, even though there are like these dozens of things out here, one of the questions I asked is like, well an investor would be like, well why are you building another storage service? And I would be like, well do you use any of them? And they would be like, no. And I’d be like, that’s interesting. Because I had the same problem. I was like, I don’t use any of these things because nobody’s really made something that I really like to use.
And then there were these other things emerging. One thing is before we started, when we started there was no iPhone. There was no kind of explosion to mobile, no tablets. But then all that stuff really started to become important too, around the same time we started.
Andrew: When you went to talk to him and others, were you doing customer development work? Were you trying to figure out why people were using what they were using, and what they might use?
Drew: Not in the formal way. So I actually wasn’t really, you know, it was really kind of a personal implement. And this idea that I’d seen the system that had worked really well at school. I mean that was only a partial inspiration. But you know, there are all these things that people deal with. There are all these other kinds of behaviors that are kind of proxies for demand. I mean, that’s one way of putting it. But people were carrying around thumbdrives.
People might say, well I don’t use a cloud storage service, but I do e-mail myself stuff. And I understand that’s useful to do that, and I do carry around a thumbdrive. Or my company has its files on a server or on a shared drive that we have in the office, but it’s a pain to get to them from outside the office. I mean, there’s all these other things that people were doing that were much less convenient then you know, what if you just had this kind of magic folder that kind of took care of all this stuff for you…
Andrew: So why, how did you get to talk to Chris Dixon? Why did you have conversations with guys? I don’t mean to obsess on this but I thought it was really interesting that you didn’t just launch it. You went out and you sought some of the smartest people in this space and you got conversations with them. Which made me wonder, how does a guy who at the time was a nobody. Today everyone is trying to get a conversation with you. But at the time you weren’t that well known. How do you get in the room with a guy like Chris Dixon and many others and what are you looking for when you’re doing that step?
Drew: Yeah, so it was, so I’m really good friends with this guy, Adam Smith, who started a company called Zotney. And they did Y Combinator. And I was actually literally camped out in their living room while they were doing that. And so Chris introduced me, I think I said. Sorry, I think Adam introduced me to either Chris or through a mutual connection. I know Chris was employing a couple of MIT guys. You know, usually if you’re like an MIT engineer you know you can get meetings with opportunistic entrepreneurs and so, he was really nice. I was in New York and just stopped by his office and showed it to him. He was, as you can see he wasn’t like thoroughly impressed. He sort of understood what we were trying to do, but, there was a relatively common reaction among investors.
Andrew: So, by then you already had some kind of a product when you went to visit him, right?
Andrew: And I guess because you were at MIT as you said, and you were an engineer at MIT, was saying, hey this guy might have something valuable, or maybe he might be smart enough that he can come work for one of the companies that I’m investing in. That’s how you get in the door, that closed the connection. And once you get in the door, a lot of people…
Drew: You know, we were introduced probably through Adam or someone like that. And I don’t mean to suggest that he had ulterior motives with this stuff. But I’m saying in general people will take meetings with engineers because there’s a lot of good, whether it’s investment or some other context as well. There are good things that can happen and also just the valley in general has always been pleasantly surprising that people are willing to help.
Andrew: I agree. Tell me if I’m making too much of a big deal of this. I’m using him as a proxy for several conversations that I’m understanding you had before hand. But it seems to me that there’s something to having those conversations in the early days. You certainly said that by watching a guy who went through the Y Combinator program and saying, hey if he could do it, I think you said in an article, then I felt like I could do it too. So that helped you. Having input from others, was that helpful too, or am I spending too much time on this?
Drew: No, I think it’s absolutely true. Because there’s this preconception most entrepreneurs have, especially when you’re first getting started, that you know I really shouldn’t talk about my idea because then someone’s going to go run off and steal it. When in reality, most good people already have stuff that they’re working on and excited about and the chances that they’ll just stop whatever their working on and work on your idea are pretty low. Especially given that usually to have that idea you need to have some context that the average person might not have.
Sure, there are corner cases where this kind of thing can be a problem.
Andrew: So, how do you make it useful, a conversation with that? I imagine a lot of people would get in with one of their heroes. Today it might be you, they get into your office. And they’re so dumbstruck or so in awe or so feel like just being in the room with the guy, something smart is going to come into my head and I’ll go out there and change the world. But were you able to make it useful proactively? What were you doing that made those conversations helpful?
Drew: I think, yeah I was just talking to literally anyone who would listen.
Drew: Trying to get feedback, you know, from you know, from people who were potential users, to potential investors, potential cofounders, potential…
Andrew: Do you have something that was useful that you learned from those conversations?
Drew: Well I think, you know, one of the very first things I did in addition to talking to people is I put out a video on (?). So right as I was finishing my, right as I submitted my Combinator application I’m like, well my first company was in college it was in test rep in college admissions. And usually one of the tricks there is to do something to stand out. And so I thought it might be worth a gamble of really trying to get attention when you have this kind of sea of hundreds of applicants. And it worked.
So, and not only did it work but I got just pages of feedback from all these people that watched the video. And they were like, wow, this is really great, I would use this. And sometimes it’s just a lot of little things. I had a whiteboard in my bedroom. I took a picture of it. And I was like, well I’m making 85 thousand dollars as a software engineer. Assuming my costs are zero, another sort of wonderful assumption, how many people am I going to have to sign up for this service to make it not a terrible idea to lose my job. It was on the order of 1,000 or hundreds. I was like look, I can probably convinced several hundred people to use this. I would use it.
I personally know a lot of people who would use it. It’s a lot better than what other people are doing. I have it working so it’s not really a question of can I get it to work. Then my friends who were engineering students and classmates, and going on to start companies, and really getting into these circles. An important part of it for me, and one thing that everybody out there can do, is really to surround yourself with people who are going through the process or have gone through it because it gives you kind of the inspiration to do it.
Andrew: I spent a lot of time on the people who you surrounded by. Tell me a little bit about the ideas. I read in the Forbes article on you, the recent one that just came out, that going and reading emotional intelligence and, really, it seems bunkering down and reading a lot of books helped you. Can you tell me about why you did it and what you learned through that process?
Drew: I started programming when I was really young. By the end of high school I kind of felt like I was at the point where, even though I still had a lot to learn and studying computer science was really useful and I became a lot better engineer as a result of that. I realized that there’s a lot more to starting a business or to understanding how the world works beyond just the engineering. One of the great things about the last 10 or 20 years is just all this stuff has been written about the process of starting companies and now there’s all these blogs, and Hacker News, and resources like this where you can actually hear how people did it.
If you’re interested in understanding how something like sales works I would literally just go to Amazon and search for the top rated few books on sales just read them. You’re not going to become a great sales person just by reading a book any more than you would become a great basketball player by reading a book. But it still gives you a context and these useful mental frameworks for thinking about different kinds of problems beyond engineering.
I did that for books on sales, and finance, and management, and negotiations. All these things where I just knew nothing. I was also working at another startup called Bit9 (?) and the founder of that company referred a bunch of books to me. I just found this stuff fascinating. It turned out I was as excited about that stuff as I was engineering.
Andrew: Are there a couple you could recommend to the audience right now?
Drew: I think the ones I recommend to start with, it depends on what you’re trying to do, but in general there’s a bunch of good ones. There’s “The Innovator’s Dilemma” was the most highly recommended to me. I also recommend it. It’s just a useful, it kind of helps you understand how start ups can survive and exist and beat these big companies with so many orders of magnitude more resources.
There’s “Founders at Work” by Jessica Livingston. It really gives a good flavor of how these companies get started. I think that’s one of the biggest hurdles. If I wanted to go make a movie, I don’t know how to do that. I guess I’d move to L.A. and that’s all I know about that. I think that’s something that prevents people from doing start ups is they just don’t know where to begin. “Founds at Work” is a really good, kind of, all these vignettes about how all these people got started. Especially in the days when they weren’t well known.
Then I think there’s a bunch of other books. Maybe some more unusual ones. There’s this book called “Poor Charlie’s Almanac”, which isn’t really even, maybe it’s on Amazon nowadays. It’s by Charlie Monger who was Warren Buffet’s right-hand man. It’s just this fascinating book. It’s sort of a collection of all of his talks. It’s just sort of how to become worldly wise, or how to think clearly, or sort of think from first principles. That may sound a little vague but it’s a really great book.
Then “Four Steps to the Epiphany” by Stephen Blank.
Andrew: I’d also say “Damn Right”, the biography of Charlie Monger where you get to see his reasoning. How he logics out a decision to invest or not invest in a business.
All right, so you armed yourself mentally. You armed yourself with really smart people. Then you built the product, or you built the product along the way too. Then you created this video that Eric Ries talked about in his book” The Lean Start Up”. It helped get tons of registrations. Sorry?
Drew: I said that’s another good one. Nowadays I’d recommend that, too.
Andrew: “The Lean Start Up” by Eric Ries. How much of what you showed in that video was already built? This was a demo video where you said look, this is how you could use Dropbox. How much of what you showed in there was already built and how much was going to be?
Drew: It was relatively easy. Here was a problem with the space in general too, was that there were all these products that kind of sort of worked or they worked if you didn’t kind of stress them. What I mean by that is a lot of these products maybe did similar things but if you threw 10,000 files in there or if you threw a multi-gigabyte file in there the thing would just fall over.
One reason that we didn’t ship for so long was that I really wanted to make something that was bullet proof. Because you want to iterate fast and launch quickly except if you’re making something mission critical. We’re asking people to trust us with their most important stuff. The frustrations I had with these other products were you don’t really know what it’s doing or you go into support forums and you read all these horror stories about the thing not working properly.
Anyway, to answer your question. It was easy to build the prototype. It was hard to make something that worked 99.99% of the time. Because on the desktop there’s all these pathological things that can happen where it’s just a very hostile environment. It’s hard to develop software for all major PC platforms. But it was easy to show the concepts working.
That’s why I showed a video instead of shipping code because it just, I knew that if you threw a million files in your Dropbox it wouldn’t perform well. The best way to avoid that situation is not to let it happen in the first place. We had this closed beta that was really useful for getting early feedback but not, sort of, limiting the scope of the problems that could happen.
Andrew: I see, so everything that you demonstrated in that video was actually done using Dropbox as it existed in this private beta. You didn’t want to release the private beta to the world but you still wanted some feedback and you wanted, of course, to collect email addresses of potential users. You put up this video. You said this is how the product works. If you want it join our mailing list, essentially, and we’ll give you beta access when time allows.
You said by doing this, Eric Reis said you got tons of email addresses. Do you remember how many?
Drew: We did videos twice. One was when we launched (?) and two was about a year later when we actually made a new video and put it on Digg. I can talk more about that. Yeah, it got us, the day after we launched that video, we had 5,000 people on the waiting list the day before and 75,000 people a day later.
Andrew: This is the second one on Digg?
Drew: The second one on Digg.
Andrew: Let’s come back to that in a moment. The first one, though, was just to get into Y Combinator, or was it also to get feedback?
Drew: It was both. It was really kind of to get attention but also, I still had, technically had a job, had a day job and was working on my first company.
Andrew: What kind of feedback did you get?
Drew: The thread is actually still up on hacker news. The video was all done in one take. It wasn’t doctored. I wanted to make sure people knew that it was authentic and not too cooked up. The feedback I got was I would use this. Or this is really something you should work on. I talked a little bit about the technology around it too and they were really excited about the technology. It was a lot of enthusiasm. It was probably the most encouraging thing that helped me get started.
Andrew: Did they open your eyes to a feature that you needed to add that you didn’t think of or a direction you wouldn’t have gone in otherwise at that point?
Drew: Maybe not that specific feedback from that hacker news thread. Raj, my co-founder, he saw the video and we actually didn’t know each other before we joined up. In some regards it also contributed to me getting a co-founder.
Andrew: That was the first time that he saw you and saw this product?
Andrew: Got it. How did you guys connect? I’m sorry, I know how you guys connected. Let me lead it this way. You then applied to Y Combinator which eventually funded you, but as you and I talked before this interview started, Paul Graham, I think, turned you down and said you needed a co-founder?
Drew: Yeah. I was looking around for a co-founder and I had a bunch of other friends who were engineers and were good candidates but just for different reasons the timing didn’t line up for them. So I had, but I had made friends with a bunch of Y Combinator people. There were people that had been funded by Y Combinator and so there’s this whole network of entrepreneurs. And I spent a bunch of time in San Francisco basically showing Dropbox to anyone who would listen and complaining that I didn’t have a cofounder.
And it turned out one of these guys that I met, named Kyle Vogt, he’d actually also, he’d dropped out of MIT to start his company justintv. And it turned out Arash and he were really good friends. They both studied computer science in the same year, both grew up in Kansas. Like all these unusual parallels. And in my life one of my best friends, Adam, who I mentioned, he had just moved out of Boston and moved to San Francisco and was just having this amazing time and I was getting cabin fever just not, feeling like I was missing out by not being out there.
It turned out that Arash was having a very similar experience with Kyle. Because one day they lived on the same floor, in the same dorm. The next day Kyle is out in California and Justin is on the Today Show and all this stuff that’s happening all at the same time. And Kyle introduced us and you know, we exchanged some e-mail and met up at what used to be the student center at MIT and just talked for a while and it’s a pretty funny thing in retrospect. We didn’t know each other. We spent maybe two hours together before deciding, yes, of course we’re going to spend most of our waking hours in the foreseeable future together. Yeah, it’s like getting married on the first date.
Andrew: You know what it was? What was it that made you say, this is the guy? This is marriage.
Drew: Yeah. I think, well part of it was the eagerness to get. We both sort of shared that desire to do something important, and do it soon, because there was a very limited window of time. Because the application, I had already submitted the application as a single founder. But needed to line something up. So part of that was just the dynamics of the situation. But it was clear that he was really smart and really passionate about a lot of the same things I was. And we sort of had a good complimentary interest.
So we’re both very technical, we both care very deeply about the product. I was excited to do a lot of the business aspects, and he was less interested in that. And I wish I could say that I sort of knew it all along and knew it up front, but it turned out he’s also a really great judge of character and had all these other positive attributes which I didn’t realize in the first couple of hours we spent together. Like, yeah sometimes you just have to get lucky with these things.
Andrew: So Paul Graham for years has been saying that companies with cofounders do better, have an easier time then those who are single founder. But I think almost for that long I’ve heard entrepreneurs disagree with Paul Graham about one issue or another. You know it’s very easy when you’re reading his essays to go, this guy’s brilliant, I should be doing it. And then when he tells you something that’s different from what you want to do, it’s harder to listen.
I’ll give you an example. Ilya Lichtenstein of MixRank kept going to Paul Graham saying, this is what my product is, I’m going to build it before launching. And Paul Graham apparently told him, launch it. And then he didn’t launch it. And then a week later they’d have another meeting and Paul Graham would say launch it, and he didn’t launch it, and so on. Until he finally launched it and it turned out Paul Graham was right. all these features that he imagined he needed just weren’t necessary. The audience, the customers didn’t complain about it.
What I’m asking you is, as an entrepreneur with a clear vision who’s saying to the rest of the world on so many other things, you guys are, you’re not seeing my vision. Why didn’t you say to Paul Graham and to Y Combinator and to anyone who thought you should get a cofounder, hey you know what? I know this, I built it up myself, I’ll get employees later. Why did you say, cofounder, yes, I’ll do that?
Drew: Well, yeah. I think I went through that phase where I’m like, I can just do this myself. I can write code and bring people on later. But you know, Paul has written extensively about the reasons both kind of theoretical and empirical evidence that suggests that companies with cofounders do a lot better. And it’s pretty compelling. So on the one hand I would be, I was, I didn’t want to believe that I, you know. The prospect of finding the right cofounder and just how important and daunting, how important that decision is is like really daunting.
And in some ways it’s just easier to convince yourself that it’s not necessary and actually got to confront it directly. And any life decision often has elements of that. So, I think, and people are also persuaded by the fact that just because there are single founders that exist that they could fit in that category or that it’s not really necessary. For me it was just that both looking at it in retrospect and what I was thinking at the time was that it’s hard enough to start a company and you’re going to be competing against all these people that have co-founders. Part of reading all of that is pretty easily convinced that this is hard enough to do in a team and the ups and downs of it can be particularly lonely if you’re a single co-founder.
Andrew: Can you give me an example of one thing that you were able to do because of Arash, because of your co-founder that you wouldn’t have been able to do otherwise? How has he come through and helped you?
Drew: We bring different perspectives. It’s a good kind of built-in checks and balances. If you have a situation where you’re talking to a Chris Dixon and he says you shouldn’t start this company, maybe one day you’ll be like Chris is totally wrong and should do this anyway. But maybe another day you’re like, oh my god, maybe all these people are right, maybe we’re nuts. Both of you have these kinds of syne [SP] waves of we’re really excited, we’re really worried; that doesn’t even change even as things progress. But just the moral support of having someone else just there in the room at five in the morning when you’re coding and just the spirit of being in this together was great.
Andrew: I can see that.
Drew: There’s such an emotional element or managing your emotions. You have to work so hard for such a long period of time that it really helps to have other people that are as motivated as you and whose judgment you trust.
Andrew: All right. For this next question I’ve got to give you just a little bit of background so that you know how important this question is to me because otherwise it’s so easy to blow this thing off. I feel that we often cover up the way that we started, the motivation that we start off. We come up with this story that’s much more appealing and much more media savvy than the original reason for starting a business.
For example for me, I launched Bradford Murray because I couldn’t even dress myself. I was so awkward in public, I said if I build my first business and I make enough money, I can hire someone to dress me, I could hire someone else to teach me how to relate to other people in a chatty way. I never understood even what chatting was. I could understand focused, business-driven conversations. So that’s why I did it. I try to be open about that. There was some reference in the Forbes article about billionaires, bottles and babes being a motivation for launching the business. You and the writer, or the woman who was interviewing you on camera, kind of kidded about it like it was an inside joke. But we in the audience didn’t get what the inside joke was, or at least I couldn’t research what it was. Tell me about the motivation of billionaires, bottles and babes.
Drew: The truth was I didn’t really get it either. Charitably, I would say it was taken wildly out of context. What I said to her was people think, I had this impression, maybe other people do, this process of starting a company and selling it or building something like this is really glamorous. The term I used was ‘models and bottles’. As in like, Wall Street or different things. People think it’s about that, I thought maybe there was an element of that or an element of glamour.
But in fact, what most of these people really enjoy is the process of building things, having a bunch of really happy users, and doing something important that has a lot of impact. That was surprising to me because I thought maybe people just go out to California and they build a company. They sell it, they get their 10 million dollars or 100 million dollars or whatever, and they just chill on a beach. I was a year out of school and thought, that sounds like a pretty reasonable outcome.
But then you realize that you meet these people that have the 10 million dollars, or the 100 million dollars, or a billion dollars and what gets them up in the morning is the same thing as when they started which is building things, solving problems, and working with great people. It was surprising to me how soon you run out of things to buy because you don’t have enough money and how little that ends up motivating people for, at least in a literal sense like needing to spend more money and it’s much more kind of like, I think, Max Lechen put this as like it’s people use it as a scoreboard.
As, you know, not to hoard the most wealth because most of these people give it away but really as a measure for the impact you have on the world and like, if you make a lot of people happy or you make something a lot of people need, then they pay you or they pay a lot of money for the privilege. And so, that was just something I didn’t really expect when I moved out here.
Andrew: When I used to, when I had a job in college to get myself going I had to picture of a laptop that I wanted to buy once I earned enough money. And on those down days that really helped me and I said I’ll just keep working so that I can at least earn that. Then when I did earn enough money to get it I decided ah well, my old laptop works pretty well, I don’t need. And I was just having enough fun. But originally the idea was that vision. For you too, was it something a little more, you know, more about the frills at first and then you discovered the passion of getting all these millions of customers happy?
Drew: You know, similarly it’s really like all my life I’ve really enjoyed building things and taking things apart and programming and, you know, I was kicking around a bunch of ideas at the same time because I was really kind of. You know one of the other cautionary tales that Chris has, I met, and I think I know how I met Chris now. I was introduced to him by his co-founder, Tom Pinkany [SP], who I’d met at a general catalyst networking event. I’m pretty sure that’s the connection now. And he had told me the story that they had spent so many of, at the start-up before, they had spent like six years, I’m going on a little bit of a tangent here.
Andrew: Go ahead.
Drew: They spent like six years, you know, sort of toiling away in obscurity or wandering in the desert on an idea that wasn’t a complete failure but it was never going to really succeed. And, you know, as an omen of like, I was just like, I wish he didn’t even say this but he was like, God, I wish we had just shut the doors or not been kind of stuck in this situation where we’re just sort of we’re leashed to this thing for, you know, a big chunk of our twenties. ‘Cause then when we started a new company it was a lot easier, they thought more carefully about the idea and, you know, that was kind of a cautionary tale for me because I was sort of working on my SAT Prep company and it was a really great experience.
But it was also clear that I wasn’t, you know, I sort of, one epiphany that happened to me was, and maybe I was a little slow on the draw to realize it, but, you know, kind of after the sort of thrill of starting a company and sort of being able to call yourself an entrepreneur and you know printing your business cards that say Founder, you know there’s just a lot of work to do and, you know, you better be excited about what you’re doing and, you know, I’ve always been really passionate about technology.
And I just, you know, it turned out the SAT Prep company was really much more of a marketing challenge. You know the progress was also sort of important but it was really kind of how do you convince all these parents to spend you know a bunch of money on getting ready for the SAT when there are these other big brands out there. I just wanted to do something where, you know, I looked at all this software on my computer and I was like, somebody made that. There’s some guy out there that built One Amp. There’s a phrase, like an internet treasure which I really like and I didn’t put it in this way at the time but I was like, well, I really want to build and internet treasure. Something that reaches a lot of people and makes them really happy.
Andrew: And man, have you done that. You built an internet treasure; you see it on everyone’s computer it feels like.
Drew: And so, but even before that I really loved building things. You know here was an idea, and I’ve also always been passionate in particular about, you know algorithms and distributing systems and really reaching scale. And also doing things that sort of help normal people. Dropbox, and I did have these kinds of measuring sticks for my idea which were one, and they’ll be different for everyone.
But for me, I wanted to work on something that was deeply technical, where the technology was the core competitive advantage. And, because I would just be bored otherwise. So that was the first thing. The second thing was it had to be something that, you know, you could explain in a bar or coffee shop and have people vaguely understand what you’re talking about and, you know, that ruled out all kinds of potentially profitable or interesting, you know enterprise software of other interesting structure companies. And then, (?) had to have a real business model because I didn’t really know how to deal with the situation. This was like at the height of web 2.0. I was like, at some point you can defy gravity for a long time but not forever.
Those were the three things I was thinking out as I was kicking around all of these ideas and Dropbox really . . . It was also an indication because I just kept going back and working on it in my spare time. This was the thing I really wanted.
Andrew: I see. You kept returning to it, you said. I must love this. There’s something there.
Andrew: How did you find the business model for it? There’s so many different ways that you could have found revenue and built up the business. How did you find this business model?
Drew: Freemium was starting to become in vogue or I guess Fred Wilson had coined the term a little bit earlier. It’s the kind of thing where there were things like Shareware back in the ’90s where most of the users of the products were free, but then you’d pay. The software harasses you and eventually you either get so annoyed or feel so bad that you send them your 20 bucks or whatever.
There was real value. A few things were clear, one is distribution was going to be hard to get. All of these other companies had had starts, so once we did make a free product, and that will spread around faster. The observation was that if you could convince . . . A given person may not pay for it, but they might refer someone who will. Or they might start using it a little bit, but then as they use it more and more over time, then maybe they’ll find a reason to put a lot of stuff in there and pay.
And so, there’s always kind of irritating to have these 10 day free trial things. That was kind of the impetus. It was really to do something simple where there were other precedents. I can’t remember now, but I’m sure there are other companies that gave up to some amount of free space, and then you paid for more.
It was simple, and it was something that over time this was how we determined our pricing even at launch. OK, well, we have this handful of competitors, and Momome [SP] costs 99 bucks. We’ll probably not going to be twice as expensive or half as expensive. So, I would just start there which is a little frustrating because we then did all these elaborate tests and analytics; split tests, cheaper plans, more expensive plans. It turned out where we were was kind of the profit maximizing point.
Andrew: You mean you just kind of winged it when you launched, tested it later.
Drew: Yeah, that’s right.
Andrew: And the winged price was pretty much where you would have been if you would have tested thoroughly in the beginning.
Drew: Yeah. Oh, that was just luck.
Drew: It seemed like an easy way to get the product out to as many people as possible.
Andrew: You know what? That’s a great answer to a question that I get a lot by e-mail people, say, can you get someone on to talk about how to come up with your pricing first. You just gave us the answer that worked for you, which is you looked at where your competitors were. You said, I can’t double their price, but I could come in less than them.
Andrew: You roll it out and then when we have a big enough audience that we can do some AB testing and do some deep analytics on it, then we’ll figure out the exact prices, but for now we just need something to roll out with.
How soon . . . I’m sorry.
Drew: You have to be careful because it’s kind of hard to change in-flight. It’s something where if you give people something for free and then charge them for it later, that loss, just the way that people work is that loss bothers people a lot more than not having the functionality in the first place. You do have to be thoughtful about this and make sure that you’re generally pointed in the right direction before you just go.
Andrew: I see. You’re saying that you couldn’t say, hey, everything up until two gigs is free, and then on come back and go, you know what, people who have video are more likely to pay. From now on, everything to two gigs is free, but video people have to pay us. No, because the people that have video on would be upset because they didn’t qualify.
Drew: You just have to be careful. There’s ways to get around it. You can grandfather in old users, and there’s tactics you can use. So, it’s also easy to get too carried away with having to be perfect. In general, I guess my whole point is you should have some idea of what the business model is.
It’s not required. Obviously, a lot of companies that have been started did great without having a business model in place, but I think they’re sort of outliers.
Andrew: OK. How soon after you launched the product, did you have that revenue model?
Drew: At public launch we had it.
Andrew: You did? OK.
Drew: We started the company in April, 2007, launched it in September, 2008. That pricing model was in place in 2008. Before that it was just all free.
Andrew: Your users came from the email list that you built up when you showed those two videos? The one on Digg and the one on Hacker News?
Drew: Yeah, that’s right. We also had this capability where you could invite people. People were selling these invite codes on eBay. It was pretty entertaining.
Andrew: The invite came in at what point?
Drew: I think it was probably a month or two after we launched. Maybe we added it at the time of our beta, maybe it was a little bit after that. Over that summer we invited more and more people in. We gave people that were on the waiting list the capacity to invite people.
Andrew: How did you recognize the value of email addresses? At the time, we’re talking about Web 2.0 was just on fire. People were thinking that social and Digg were where the action was, blogging even more so, and you said give me your email address and I’ll let you know when it launches. Why did you decide to build that first?
Drew: I think it was, we put the video out because the code wasn’t ready yet, but we knew that we had something compelling. If we could start building interest in this without tipping our hand too much to potential competitors then let’s do that. Also, if all these visitors are raining down on you, you want a place to catch them.
We could have just showed the video and people would have thought it was cool and then moved on to the next thing on Digg. But we thought why don’t we make something entertaining and then capture that interest by getting an email address? If they’re interested enough to do that then they’ll probably be a user. I’m sure there were other cases of seeing that around the web too where something’s not ready yet but you can put in an email address and be notified when it is.
Andrew: OK. All right, I also saw at the time a lot of people saying come back to the website, we’ll launch soon. Or sign up by RSS. You banked on email at the time and it was right decision, obviously.
What about this? I want to go back and talk about growth but let’s just spend a little more time on that first launch because it was so elegantly simple. We’re talking about a tough product to communicate to people and you found a way to do it. I think you said a USB stick in the cloud, or how did you express it?
Drew: We had a bunch of different ways. We actually really struggled with the positioning. Since the beginning we didn’t want a position that was back up. Because one is back up just occupies a completely different space in people’s minds where it’s this sort of insurance next to your health insurance and car insurance. Nobody feels good about writing that check. We maybe feel good about being protected. One of the great things about Dropbox is that people really enjoy it. Surprising but it’s something that we wanted to do is just make something that people really used.
Back up was very limiting in terms of, by definition it’s a pretty narrow space. Like the engineers that we were, we were like here are the 19 things we can possibly do. Early versions of our website had like six little icons. It backs up your stuff, it keeps it in sync, you can share stuff, and access it via web, blah, blah, blah. We were sort of just throwing spaghetti against the wall. It was really confusing for people.
We’ve changed the positioning more recently, this year. Where it’s like look, why do people use Dropbox? Or what’s good about it? It’s really because it makes your life simpler. Right? There’s just all this stuff that you used to have to worry about that you don’t have to worry about now. Or all these new problems that you have with your technology that you just didn’t have a few years ago. We’re kind of out in front of that. Or any more (?) than that. It’s like have your stuff with you wherever you are.
It just took us a while to think that clearly about it. I think the tagline on the website was secure, back up, sync, and sharing. Something terrible. We just iterated on it.
I’ll add one thing to that. The challenge we have is some people really do use it for back up. Some people really primarily use it for sharing. Some people primarily use it for syncing things between their home and work computers. We observed all of those kinds of buckets of use cases. Our solution was we’ll just talk about all of them when in reality that just kind of confused people.
Andrew: What’s the way that you express it now?
Drew: The way Dropbox spreads is people tell their friends or they share things. It’s pretty straight forward I understand. If some one is sharing something with you with Dropbox you sort of get this idea Dropbox is for sharing. You start using it for sharing. Over time we can educate you with email and other things that, hey, there’s more Dropbox can do for you.
Another thing we do is we have this referral program where if I tell you about Dropbox you get some extra space. I get some free space. You get some free space. It’s kind of a two sided incentive program. That drives a tremendous number of our users.
In real life it is often something in word of mouth that we just can’t measure. I may know that you have a band and you record music and that you and your band could really use this to share. Because I’m also in a band and we use it to share.
Because I know something about you I’ll tell you. I won’t focus on the back up piece and I won’t focus on the syncing things piece but I know you need to share. In our conversation I’ll talk about Dropbox is a really great way to share stuff.
We just didn’t have that benefit. It’s a challenge that any company has where it could be their market or the ten things it could be useful for. Part of it is sort of seeing what sticks and part of it is really seeing how your users describe it. So when people would write about it we would pay attention to that.
Andrew: I see. I actually have over ten gigs of space with Dropbox because I just keep tweeting about it and telling people to do it.
I saw one guy on hacker news talking about how he bought Google AdWords so that he could advertise Dropbox. Not so he could get a commission off of it but because he understood that every time some one signed up for Dropbox through his link they would get extra space but he would certainly get extra space for having made that recommendation.
He and I and so many other people are recommending it. I understand the way you found that model or the way you discarded other models was by trying things like Google Ads and it didn’t work for you.
I heard about the way that you said those things didn’t work. We were not Google Ad buying masters. What I’m curious about is how did you come up with this model where you reward me for sharing it. Where you reward some one else for using my link as opposed as going to dropbox.com. First of all, I have that model right, right?
Drew: Yep. That’s right.
Andrew: How did you come up with that?
Drew: It was inspired in part by when I was in high school. PayPal had started to take off. They had this thing where if you get a referral to sign up or they will pay you five bucks to sign up. I might have even misremembered it. I think they may also have had a five dollar referral bonus to get people to sign up.
So you would be on Slashdot which is kind of the Digger of its day. You would see all these people sending these PayPal referral links. Especially if you are 17 the idea of getting five bucks for free or getting $5 for every person you invite is pretty exciting. I saw all these links all over the internet.
I also saw other referral links but they had these referral codes, or they looked spammy or some are sort of doing this one way recommendation. Are they recommending this because it’s good or are they recommending it because they are going to get some cut?
The two sided incentive was this deliberate thing to make both people feel good about the transaction where the recipient didn’t feel like they were being taken advantage of and the sender could both get an incentive themselves and feel good about what happens.
That was kind of the psychology behind it.
As far as AdWords or other channels, we tried a bunch of different things. We explored partnerships with PC makers. We tried AdWords. We were thinking about working SEO.
What was fascinating to me and it took us long to realize this clearly. Nobody was waking up in the middle of the night like, oh my god I hate emailing myself stuff. Or I hate carrying around a thumb drive.
Just like ten years ago it was like I hate that whatever show or whatever happens at 8:00. That’s just how TV works. This is how your computer works. It’s just life. I wish my washer and dryer were just one box and I just said, “Clean my clothes,” and that was it, but, I’m not going to contribute a lot to that problem. The point is, Dropbox and other things solve a problem you didn’t even know you had. So, if you don’t know you have a problem, you’re not typing keywords into Google. Maybe for some things you are, maybe you’re like “I want to buy a USB drive,” or, “I want to buy backup.” But by and large, you’re not. So, that sort of simple observation lead us to understand that a little more clearly. No one’s searching for what you’re making. Buying and having all of the ad words in the world isn’t going to help you.
Search in general is a way to harvest demand and not to create it.
Andrew: What about this? We all go through certain frustrations and don’t even realize we have them. I was e-mailing myself files all of the time, and I was like, “How cool is it that I have all of this space in Gmail and I can email myself all of these files.” I didn’t think, “Wait, this is dopey that I’m emailing myself this file.” We’re missing out on so many little frustrations in our lives, but you picked up on it. What is it that we could do to sensitize ourselves to these little frustrations that we just accept and are almost blind to so that we can find solutions the way you did.
Drew: We think about that a lot. I think about that a lot. I think, really, that the first step is to pay attention to that feeling when (?). My girlfriend, the only time that she really gets upset, is when technology doesn’t work or it doesn’t say what it’s supposed to do. Or, when there’s something that’s so obtuse, when there are extra steps, something is poorly designed or poorly thought through, and the inefficiency just drives me nuts. First, it’s just really paying attention to that.
In particular, when normal people have these things, or have these problems. I learn a lot just by watching my family or other friends in my life who aren’t technical and seeing how they deal with problems or think about this stuff. I’ll learn as much from a random conversation from someone on the weekend as I will from a survey or things like Votebox, which is our way of having people vote for features. I think it’s really just cultivating that in the same way that when you start playing guitar you start hearing music more clearly. The same thing is true if you start to pay attention to those little frustrations.
Andrew: I see. I’m trying to think of who it was that said, “Keep an idea journal.” And you’re saying, you’re getting me to think, “Come up with a frustration journal. Notice all of the things that aren’t working right and to not blame the user.” I remember when I had a Trio, and I saw someone with a Trio not listening to music on it, even though they could they’d carry an extra iPod. I thought, “What’s wrong with you? You’re not even learning your device!” Or if I’d see them write on a scrap piece of paper I’d think, “You’ve got a notepad in your phone that you could keep with you forever. What’s wrong with you?” Of course, Steve Jobs says, “No, it’s not what’s wrong with them, it’s what’s wrong with the technology.”
Let me make a quick plug here to the audience, then I’ve got to ask you one big question that I’ve been saving for the end. I hope you’ll be honest and generous enough with that answer.
Andrew: But here is the plug that I have for the audience. One of the things that you’ve noticed Drew say over and over is that he’s learned. And I know I’ve been writing down that he’s learned from books. He’s learned from people, from having conversations with them. He’s learned from watching other people use computers and use software.
The plug that I want to make is for mixergy.com/premium. If you’re a premium member already, you can learn by watching some of these great business people show you what they do and what they’re great at. For example, if you have an issue where you don’t know how to buy ads and you’re frustrated with it. What you could do is you could Google online, “How do I buy ads?”
Chances are, you’ll get a whole bunch of link-baited blog posts with seven ways to buy ads that are all really designed to get you to look at ads on their sites so that they can make money off of you. They’re designed to get eyeballs. Or, you can search around for one person you could ask to hopefully guide you through. Or, you could come to mixergy.com for professionals, like Ilya Lichtenstein who also got funded by Y Combinator and recently raised $1.5 million from Mark Cuban and a bunch of others.
What I asked him to do was, I said, “Ilya, you’re great at buying ads. Could you turn on your computer, let me record it, and show me how you go step by step through buying ads. He did, we put it up there. If you’re a premium member, you’ve got it. If you’re not a premium member, join us, mixergy.com/premium, you’ll get that course and dozens of others, as well as hundreds of case studies with successful entrepreneurs who show you how they do it. I hope you join us. Hundreds of people every month join up.
How did I do with that, Drew?
Drew: All right.
Andrew: Yeah, I learned a lot about sales. I did OK, right? I’m getting better at these little plugs at the end. All right, here’s the thing. iCloud, everybody thought it would destroy you when Apple came out with this iCloud that was baked into their software. But it’s somehow missing the mark. I can’t put my finger on it, as an outsider, why it’s missing the mark. You know this space, what’s confusing people like me?
Drew: I think it’s just, I don’t know what they were, or how they think about, how they prioritize what they want to build, but I think iCloud certainly serves a useful purpose where it’s like, OK, well now I don’t. I mean, I think they observed that look, half of our users never sync their iPhones to a computer and that creates all of the, you know, if you don’t do that then you’re going to have all these other issues.
Or you’re just not going to end up using most of the functionality of the phone. And so, you know, iCloud today was really was kind of about, it appears to be about untethering your phone or your iPad from the computer. And then it’s also about bringing iTunes into the Cloud and some other stuff. You know, I don’t know, it’s impossible for me to know like why they chose to do one thing or another. I do know that when we think about what people love about drop boxes, it’s a couple things.
One is that I can have all of my stuff with me, you know, and I don’t have to worry about having my photos in this thing and my video and this thing and my documents in this thing. I think you just have it all together and it’s all just available and useful and the second thing is, you know, you can do that on any platform. And so, even if you’re in an all Apple household, you might have to share. I mean what happens if you have to share with your aunt who has an Android phone, or a PC? And so just being free to know that, OK, no matter what that either I have or my friends or co-workers have that it will just work is something that people just really like.
Andrew: But I don’t even know how, if I wanted to take something that I created in iCloud, I don’t know how to share it with you who has a Mac and every other computer. I don’t know how to share it with my other, I don’t even know how to find it. So there’s someone who creates a think an App called One Journal for the iPhone and he uses Dropbox to let people connect On Journal to all the different Apple based computers and IOS devices that they have. He was going to go and use iCloud; if he did I don’t even know how I would find the file that I stored on iCloud through his program. With you I know what Drop Box is going to be in my Drop Box folder. There’s some kind of understanding that they don’t have. And what is that? Are they trying to make it overly simplistic?
Drew: I think that there are a lot of great things about this kind of post-PC world where, you know, and it’s true at Dropbox, too. We don’t want you in the long run to have to be managing all these files and folders, because when you think about your stuff it’s not files and folders, right? Like, I mean, in a literal sense or for some people they might, that metaphor is useful.
But you think about I’ve got these galleries of photos, I’ve got these albums and playlists of music, I’ve got these projects I’m working on, these documents with these people. And so, I think there’s a lot of merit to sort of having Apps, or sort of having Apps or just each App having a sort of special view on your stuff or a subset of your stuff. I think that’s great.
Where it starts to become a problem is when that stuff becomes sort of locked in that special place, or, you know, you can’t then, or they have all different mechanisms for sharing things, or for, you know, if the world moved to like iPhoto.com and or iPhoto moved to iPhoto.com and Photoshop moved to Photoshop.com, you know, and I have a photo in iPhoto and I want to remove it’s red eye in Photoshop, like you still need a way to kind of connect those things. So, really, you know, when you think about what we’re building, we’re really trying to build a kind of that internet file system that ties together all of that stuff and, you know, I know I’m going off on kind of a little bit of a tangent here.
I think it’s something that’s going to be really helpful. And it’s not just your devices but then all the Apps and services that you use. We’re really trying to build not just this magic folder but really this fabric that ties all of your stuff together. And so, I think they all seem, maybe they’re tacking in that direction and maybe they’re not. I think, we also have to look at incentives and that’s a big thing from one of those earlier books.
The logic for this thing is often pretty simple and for Apple it’s like look we sell hardware that’s at a cost, or a price that’s much higher than the cost to make it. And we can do that because we have a great brand and we have great experience. And if someone comes into Apple we have a way to really improve the experience. There’s going to be a tremendous incentive to be like, that’s a great idea, why don’t we just keep it, make that experience great on our hardware and not elsewhere so that we can continue to have, so that people have a reason to buy an iPhone instead of a Droid or another phone, and Android phone, that might be a lot cheaper. So, it might be politically or organizationally difficult for them to-, you know. And this is practical stuff.
If you have ten great engineers come in the door, what are you going to put them on? Are you going to put them on Blackberry version of iCloud, are you going to put them on Windows version of iCloud, are you going to put them on Android? Maybe if they really wanted to make iCloud pervasive and that were really their core business, they may be able to do that, but I think it’s an interesting example, not just of Apple making the right or wrong decision but more that it is fascinating that start-ups have this opportunity to compete in these areas just because it’s very hard for companies, as they get bigger, to focus on more than a few things at once. And even for us, there are all kinds of things where we just drop these huge opportunities on the ground just because we can’t-
Andrew: What big opportunity did you drop so you can focus?
Drew: One example is big enterprise customers. I don’t mean making people happy in bigger companies, we actually have a ton of users and enterprises and they’re an audience we care about for sure, but we don’t go out to a Cisco and say, “Hey, we want you guys to deploy x-tens of thousands of seats of Dropbox,” because we just haven’t built, not only the capabilities to really manage that and make that a good experience, I mean people are not going to be cutting and pasting ten thousand email addresses into a shared folder invitation.
The diversion is not really that as much as, then there’s all these regulatory or clients or legal or other kinds of stuff, auditing and control mechanisms that totally make sense, but would keep us-. The time we spend on those things is time taken away from the bigger opportunities we see, so often we got that question especially early on. “Why aren’t you guys going after this enterprise opportunity? I mean, file servers suck, share points suck. You guys could make so much money.” It’s not that we don’t think that’s a worthwhile thing to do, it’s just that we really want to focus on the bigger opportunity to make a billion people happy just by selling them a specific product and maybe we can get to some of those other things later.
Andrew: All right. This is usually the point where I say thank you to the guest for doing this, but I’ve got to go even beyond here with you. A lot of times, to be honest with you, guests will come and do these interviews because they now have an audience and they hope the audience will use their product. You have so many people that if everyone in my audience uses your product tomorrow, it’s not going to register a blip. Or they say, “I want to look for biz-dev opportunities. A lot of people in the audience are potential partners or potential inquirers in my company.”
You’ve got enough biz-dev opportunities coming out of your ears. So the only reason I can imagine you’re doing this is out of a shared mission with me to just share your experiences with an audience of other people that are today where you were before you met Chris Dixon, before you met Paul Graham. Back when you were, maybe, reading on your own or trying to figure out your business. And I really appreciate that about the culture of our space and I can see from your smile that you do, too.
You’re giving it and I appreciate it and I don’t know how exactly to thank you, which is why I stumbling over my words, so I’ll just keep it very plain and I know that you understand the feelings that I’m communicating from all my listeners here, which is just “thank you.” Understand that it’s bigger than just those two words and I appreciate it.
Drew: Yeah. My pleasure.
Andrew: All right and thank you all for watching. Go out there, do it, and hopefully you’ll come back and do what Drew did today, do an interview with me.
Drew: That’s good. Take care.